The blockbuster deal that has been rumored to be in the works for the last couple of weeks turned out to be much more than a rumor. Canadian online gaming company Amaya Gaming has just agreed to pay the massive sum of $4.9 billion to purchase Rational Group, the Isle of Man company that owns PokerStars and Full Tilt Poker.
This is truly a David and Goliath deal, as Amaya Gaming has so far only been a lightweight in the business, although they are very diversified and their holdings include the Ongame Network. Ongame is one of the smaller networks in online poker, while Poker Stars not only is the largest poker site in the world, it is larger than all other poker sites combined.
The deal is still subject to the approval of Amaya’s shareholders, but it’s hard to imagine them not going along with the deal, which takes them from the periphery of the online gaming business to the largest publicly traded gaming company in the world, surpassing Bwin Party, who currently hold that title. This deal takes Amaya Gaming from a fairly modest $155 million in revenue to a projected $1.3 billion.
Rational Group not only leads the way in online poker, it completely dominates the market, with over 85 million registered players worldwide. So how much money does PokerStars make? In calendar years 2012 and 2013, Pokerstars and Full Tilt Poker recorded revenues of $976 million and $1.1 billion, and adjusted EBITDA of $342 million and $420 million, respectively. Its cash flow from operations in 2012 and 2013 was $267 million and $317 million, respectively. The Transaction is expected to be immediately accretive to earnings and provide strong cash flow from operations for Amaya. An online gaming company taking PokerStars and Full Tilt Poker over has been unthinkable, but the unthinkable has now come to pass.
This deal could only happen with the full cooperation of Rational Group, and there is every reason to believe that this is indeed behind things. In spite of the phenomenal success of this company, and in spite of the fact that they have grown significantly being forced out of the U.S. market after Black Friday, they want back in that market. Intense lobbying has had limited success, and the best they have been able to pull off so far is to make the issue of their participation in the California regulated online poker market a battle, which has so far caused a deadlock in getting a bill approved there. They have been able to solicit the support of several of the Indian tribes there, whose approval is sought by state legislators, however it remains totally up in the air whether they will ultimately be allowed to participate in California online poker. Without this deal, it is likely though that they would not only get shut out in California, but in every state in the country as well.
While competitors such as PartyPoker and 888 Poker have been welcomed in other states such as New Jersey and Nevada, PokerStars’ continuing to offer online to poker after the UIGEA was passed in 2006 has caused them to be completely unwelcome in the new regulated frontier in the U.S., but the hope is that by being bought out by another company, they will be looked on less unfavorably and may find some success with being able to re-enter the U.S. market.
Make no mistake about it though, the expertise and domination of PokerStars will continue, as they aren’t just turning over everything to the folks at Amaya, it will essentially be the same people running that show, aside from Rational’s CEO Mark Sheinberg, son of PokerStars founder Isai Sheinberg, resigning, which is simply part of the deal.
Perhaps the biggest testimony of PokerStars’ success is the way that major banks lined up to bankroll this deal. Normally, the very idea of such a modest sized company, with such modest expertise in the industry as well, taking over an industry leader and in fact the dominant player in the industry would be preposterous, however the banks do get what this is all about and have stepped up and made it happen.
Amaya Gaming’s board will remain unchanged by this, furthering the notion that it is they who took over Rational Group and not the other way around. This was a very well thought out deal and seems to be a win win for everyone. Whether Amaya will win the big prize of entry into U.S. regulated online poker remains to be seen, but regardless, this is a sweeter deal for them than they ever could have imagined.
There is not expected to be any negative impact to players from this, and in fact, there are plans to further expand PokerStars and Full Tilt into the casino and sports betting business, something Rational has shied away from but something that Amaya is both knowledgeable and comfortable with, through their other business lines. This looks like a good move all around.
